Credit cards

Corporate credit cards, including purchasing cards (“Pcards”), eliminate paper-based processes and can provide efficiencies such as reducing the time it takes to pay a supplier. There are, however, a number of corruption risks associated with credit cards that are discussed below.

Decisions about allocating credit cards to specific public officials will depend on the nature of an agency's operations, including whether employees frequently work in the field and need a method of directly paying expenses such as petrol. Agencies may decide to provide credit cards for a specific purpose, for example, overseas travel to a conference. Even then, there needs to be limits on expenditure and the types of expenditure, for example, using the credit card only for accommodation and meals.

Chief financial officer spends over half a million dollars of rate-payers’ money on personal items

A recent investigation by the ICAC found that, over a nine-year period,
the chief financial officer (CFO) of a large, local council had used a
corporate credit card (issued in the name of the then general manager)
to incur personal expenditure of $620,091. As the CFO, he authorised
payment by the council of the accounts relating to that expenditure.

The CFO was also found to have misused his Cabcharge card for non-work related purposes, spending more than $20,000 on personal trips.

The ICAC made a series of recommendations relating to improving internal and external audit processes at the council.

Source: Investigation into the conduct of the former City of Botany Bay Council chief financial officer and others, July 2017.

Common corruption risks involving credit cards include:

a public official charging unauthorised personal expenses to a government credit card

a public official using a credit card to improperly withdraw cash

employees colluding for improper benefit from a credit card, for example, the person allocated the credit card colluding with a financial officer whose role is to check expenditure.

Although credit cards pose a corruption risk, they also provide accountability for expenditure by automatically generating an auditable record of payments. If credit card users know their records will be audited, this can help deter corrupt conduct. Audits and reconciliations also help identify misuse. Provided security is adequate, controls are in place and records are regularly checked and reconciled, credit cards can improve the accountability of some types of public expenditure.

Developing a strategy

The use of corporate credit cards should be included in any corruption risk management plan and subject to audit. A written credit card policy and procedures help ensure consistency and compliance in credit card use. The policy should be consistent with financial and personnel policies, and conform to the Treasurer’s Directions for purchasing and corporate cards.

In general, employees follow a policy if they understand it, are able to comply with it, and are motivated to comply with it. Training for relevant staff about the policy is therefore important, but even more important is designing credit card procedures that are straightforward and easy to follow, and implementing controls to deter and detect deliberate misuse.

Consider the following measures:

allocate credit cards only to support efficient public expenditure around operational functions, not, for example, to all managers regardless of need

establish clear lines of accountability for the approval of credit card usage and expenditure

limit expenditure for each card and/or position

limit items that can be purchased by the credit card

limit businesses where the credit card can be used, for example, some councils permit Pcard use at certain hardware stores only

the policy should mandate the keeping of receipts and state the timeframe for which they must be held

maintain accurate records about which positions are allocated a credit card, which individuals have one, and what the spending limits are on each card

conduct regular reconciliations of expenditure records

develop protocols for the secure storage of credit cards on agency premises

regularly review the need for the credit cards that are in use, and take back credit cards that are no longer needed for a particular role (if a credit card holder resigns, retrieve the card).

Previous conduct increases risk of recidivism

In recent years, a number of cases have been reported to the ICAC where
public officials, some in senior positions, have used corporate credit
cards for personal use. Public funds have been used to purchase such
things as expensive lunches and travel as well as to acquit parking
fines and repay personal debt.

When detected, officials have often
resigned; sometimes repaying the amount identified. Agencies have less
frequently pursued disciplinary action or referred the matter to local
police for criminal investigation.

In one matter, the public
official committed frauds between $4,000 and $45,000 on three occasions
with separate agencies before obtaining employment in a fourth agency,
where an audit uncovered the inappropriate use of a corporate credit
card by that official exceeding $1,200. The public official immediately
resigned, repaying the money that had been identified. An examination of
that matter identified little or no employment screening on each
occasion and a failure to detect the public official’s previous criminal
history of larceny and theft.

Source: Complaints to the ICAC.

Most agencies have a policy of allowing employees “reasonable personal use” of its resources such as telephone and computer use. Although credit cards are such a resource, their use should not come under such a policy because the risk of misuse, even inadvertently, is so high. It is important for employees to understand that credit cards are issued to a position, not the individual performing that role, and are not a personal benefit that comes with a position.

The ICAC’s Investigation into misuse of Sydney Ferries corporate credit cards (November 2009) report deals with the need for appropriate controls around credit card use. The following publications contain advice on managing fraud and corruption risks around credit cards:

Audit Office of NSW’s Compliance Review of the Use of Credit Cards (Auditor-General's Report to Parliament Volume Five, 2005)